Wednesday, June 1, 2016

NEW YORK (Bloomberg) -- The oil market doomsayers are beginning to capitulate.
Speculators reduced bets on falling prices to the lowest level in 11
months as oil briefly breached $50/bbl on signs supplies are coming into
balance.
Crude climbed 7.4% this month in New York amid lower
U.S. production and unplanned disruptions in Canada and Nigeria. Prices
are up almost 90% since February. Money managers’ short position in U.S.
benchmark crude reached the least since June, according to data from
the Commodity Futures Trading Commission.
"If you’ve been short
since February this has been a very painful ride," said Kyle Cooper,
director of research with IAF Advisors and Cypress Energy Capital
Management in Houston. "There are always a few die-hards but otherwise
you’d want to get out. This is indicative of the improving
fundamentals."
West Texas Intermediate rose 0.6% on the New York
Mercantile Exchange during the CFTC report week. Futures rose 0.3% to
$49.50/bbl at 11:43 a.m. on Monday.
Oil has surged amid a spate
of disruptions. Nigerian crude output has dropped to the lowest level in
27 years as militants increased attacks on pipelines in the Niger River
delta. Fires that began early May in Fort McMurray shut about 1.2 MMbpd
of production in Canada’s oil-sands region.
Market Balance
Analysts from the International Energy Agency to Goldman Sachs Group
Inc. say the crude glut is dissipating as supply and demand move back
into balance. Goldman increased its 2016 forecast for WTI to $44.60/bbl,
from $38.40 in a report dated May 15.
"The confidence of the
shorts has been shattered," said Phil Flynn, senior market analyst at
Price Futures Group in Chicago. "A lot of bears continued to bet that
prices would fall well into the rally. When relatively bearish banks
like Goldman Sachs changed to a more bullish outlook, bears noticed."
U.S. crude output fell to 8.77 MMbpd in the week ended May 20, the
least since September 2014, an Energy Information Administration report
showed. The number of active oil rigs in the U.S. slipped by 2 to 316
last week, the lowest number since October 2009, according to data from
Baker Hughes Inc.
Rig Count
"The rigs number underlines
the bullish case," Flynn said. "They are still cutting the rig count and
it’s going to take months before any price increase can result in
increased oil production."
The short position in WTI fell by
3,047 futures and options combined to 60,932, CFTC data show. Longs
slipped 2.6%, while net-long positions dropped 2.1%.
The
Organization of Petroleum Exporting Countries is unlikely to reach any
agreement to limit output when it meets June 2 in Vienna, as the group
sticks with Saudi Arabia’s strategy of squeezing out rivals, according
all but one of 27 analysts surveyed by Bloomberg.
"There wasn’t
much of a move either way; the drop in both shorts and longs was small,"
said Michael Lynch, president of Strategic Energy & Economic
Research in Winchester, Massachusetts. "The market didn’t do much after
hitting $50. They seem to be betting that the OPEC meeting will end with
a whimper not a bang."